I can't imagine the number of lawyers, accountants, management consultants suddenly jumped in November. My wild guess is that the employment increase was in the last two categories - paper shuffling and garbage collection. Hardly the engines for robust growth.

After the initial pop, the market cratered after 11:30 AM EST. Dow is currently down 24 points at 10,342. Earlier, it was at 10,516, up nearly 150 points, highest for the year. Profit taking and locking in the year's gain is the explanation offered by MarketWatch.

Thursday, December 3, 2009

Jim Bunning, Republican Senator from Kentucky and the only one who voted no on the 1st confirmation 4 years ago, had some harsh words to Ben Bernanke in today's confirmation hearing.

Mish Shedlock has a partial transcript on his blogsite. Among other things, Senator Bunning said to the Fed chairman:

"Chairman Greenspan sold the Fed's independence to Wall Street on the so called "Greenspan PUT". Whenever Wall Street needed a boost, Alan was there. But you went even farther than that when you bowed to the political pressure of the Bush and Obama Administrations, and turned the Fed into an arm of the Treasury.

"Under your watch the "Bernanke PUT" became a bailout for all large financial institutions, including many foreign banks.

"And you put the printing presses into overdrive to fund the government's spending and hand out cheap money to your masters on Wall Street.

"In short, you are the definition of a moral hazard.

"You are repeating the same mistakes as Japan in the 1990's on a much larger scale while sowing the seeds for the next bubble.The AIG bailout alone is reason enough to send you back to Princeton.

"I will do everything I can to stop your nomination and drag out this process as long as I can. We must put an end to your and the Fed's failure and there is no better time than now.

I am not too thrilled to have him around any longer, or for that matter to have the Federal Reserve.

This is the person who proclaimed there was no housing bubble. Bernanke insisted that the subprime mortgage problem was contained and there would be no spill-over into other mortgage types. Into a broader economy? Of course not, are you kidding? He insisted that banks had a credit/liquidity problems and nothing more, while all along it was a solvency problem. He told the Congressional leaders that unless they gave him and buddy Paulson $700 billion the world would collapse and cease to exist, and then yanked the liquidity from the struggling financial market which facilitated the fantastic tanking of global stock markets and then economies, as some speculated.

After the crash of the stock market and credit market, he proceeded to double the balance sheet of the Federal Reserve supposedly to help the economy recover. The economy at large has done no such thing, decidedly not because of the money thrown by the Fed. Bulk of Bernanke's money went to the nation's biggest commercial banks (including hastily converted banks like Goldman Sachs and Morgan Stanley, and a host of insurance companies and credit card companies), who simply parked the money at the Fed as "excess reserves".

By the Fed's own admission, that excess reserves were not meant to be loaned out from the beginning when the Fed started buying up assets other than Treasury bills/notes/bonds last fall. The Fed immediately started paying interest on the excess reserves so that the banks would keep the money at the Fed. It has been the Fed's policy that the excess reserves be kept at the Fed. New York Fed has even produced a research paper discussing why banks are holding so many excess reserves. The Fed needed the money there on the Fed balance sheet so that they could justify the ballooning asset portfolio of agency bonds (that no one else wants) and agency MBS (that no one else wants), commercial papers, corporate bonds, whatever else they took in as collateral, even a shopping mall and a hotel chain.

He claims it is important for the Fed to be "independent" from meddling politicians but if you look at his institution's balance sheet it is full of fiscal policy items to expressly assist the government: monetization of the government debts through open market operations; buyer of last resort for agency bonds and MBS in order to lower the mortgage rates; various lending programs to help financial firms. Definition of "financial" seems pretty broad, as John Deere, a tractor company, issued bonds with FDIC debt guarantee program, which is supervised by the Federal Reserve.

In this administration, just like the previous one, incompetency is to be rewarded. So I have no doubt that he will be confirmed for his second term. Never mind that only 21% of likely voters support his confirmation, according to Rasmussen. But when have the general public counted for anything to the politicians, other than to collect taxes from?

(Zero Hedge's poll is even worse. Only 11% think he should be reappointed.)

I am still wondering why Bernanke wanted the second term so badly. I guess it's the face issue. His predecessor, Alan Greenspan, had the job for 19 years. Paul Volcker had 8 years. A one-term Fed chairman who presided over the worst stock market and economic collapse since the Great Depression doesn't look too good on his resume.

The House Financial Services Committee (chair: Barney Frank) has approved the legislation, by 31-27, that would give the government the power to dismantle financial firms that it thinks pose a risk to the economy, even if they are healthy. It will also force big financial firms to pay the fees upfront for dismantling.

The question here is: WHO IS TO DECIDE, AND HOW? HOW IS 'RISK' DEFINED? BY WHOM?

By Timmy Geithner and Ben Bernanke, who didn't see anything bad coming their way? Or Barney Frank who insisted Fannie Mae and Freddie Mac were sound businesses? Or Chris Dodd who was a "friend of Angelo"? Or another Presidential Task Force headed by an ex-banker supported by ex-campaign staff?

As this is part of so-called financial overhaul attempt by the government, it also contains the audit of the Federal Reserve.

"WASHINGTON (AP) -- A key House panel voted Wednesday to slap new restraints on big Wall Street institutions and to demand greater openness from the nation's central bank, clearing a significant hurdle in the drive for a sweeping financial regulations overhaul.

"Motivated by the crisis that caused a near collapse in financial markets, the House Financial Services Committee approved legislation 31-27 that would give the government the right to dismantle financial firms that pose a risk to the economy, even if they are healthy.

"The legislation also would require a detailed congressional audit of the privacy-shrouded Federal Reserve and would assess fees up front on large financial institutions to pay for the failure of their competitors.

"The action sets the stage for a full House vote next week on comprehensive regulatory changes meant as a response to the financial sector's meltdown more than a year ago. That package, set to go to the House floor on Wednesday, would include the creation of a new consumer finance protection agency, restrictions on complex financial instruments blamed for feeding last year's panic and restrictions on Wall Street compensation."

Why don't we, citizens, have the right to dismantle institutions that pose a risk to the economy? The first on my list would be the Federal Reserve, IRS next, and then dismantle the entire federal government, as the biggest risk to the economy and liberty and welfare of the citizens.

(and the very definition of a fool as someone who keeps repeating the same thing over and over even if it doesn't produce the result he wants).

Bank of Japan held an emergency meeting on December 1 afternoon (their time) and decided to embark on the second round of quantitative easing. The first one was from 2001 to 2006, with dubious results (more later in the post). Just like the first one, BOJ wants to induce further decline of longer-term interest rates to stimulate borrowing and spending. This time, there is an added purpose of stabilizing Japanese yen (i.e. reversing the recent rapid rise of yen). Here's the BOJ statement in English.

BOJ intends to roughly double the size of "current deposits" at BOJ (Japanese equivalent of "excess reserve") by introducing a new 10 trillion yen (US$115 billion) lending program in which financial institutions can get a 3-month loan at 0.1% fixed rate (overnight call rate). Eligible collateral includes Japanese government bonds, corporate bonds, commercial papers, and loans on deeds.

Looking at BOJ's latest balance sheet, they have about 40 trillion yen (US$460 billion) of various lending programs. Unlike the U.S. Federal Reserve, its balance sheet size has remained steady at about 110-115 trillion yen (US$1.26 - 1.32 trillion) since 2007.

Federal Reserve Bank of San Francisco has a paper on the last quantitative easing by Bank of Japan. Their conclusion was that it did lower the longer rate somewhat, but it was hard to tell whether it was the direct result of quantitative easing or the future expectation. They also said that Japan's quantitative easing probably had an unintended consequence of helping weaker banks stay afloat and encouraging further risk-taking, thus delaying the real structural reform.

From the Japanese consumers' perspective, price deflation has been the only good thing that has happened since their real estate bubble burst in 1989-90. But Keynesians in the government and at Bank of Japan would have none of that. Price must increase.

"(Seoul - Masahiko Takekoshi) South Korea's Yonhap News Agency reported that North Korea redenominated their currency (North Korean won) on November 20, citing several North Korean trade representatives in China.

"100 units of old North Korean won are to be exchanged for 1 unit of the new currency. It is the first new currency issue in North Korea since 1992.

"According to experts in Korea, North Korea's partial market reform that started in 2002 has resulted in the price of rice rising 50-fold, and the price of daily goods rising 20 to 30-fold, as the value of the currency plunged.

"In addition to supressing inflation, the redenomination is aimed at crack down on the private assets in the black market. According to Yonhap News, the currency exchange started on November 30 at 2:00 PM. Citizens, fearful that the government would find out about their hidden assets, flooded the black market in a panic to exchange into Chinese yuan and U.S. dollars.

"Korea's Daily NK, Internet newspaper specializing in North Korea says the exchange covers both paper currency and coins, and the exchange has started at North Korean central bank and its branches. Korea's Ministry of Unification says it cannot confirm the redenomination at this time."

"BEIJING (Reuters) - Dubai's debt crisis could be China's opportunity to snap up gold and oil assets, a senior Chinese official said in remarks published on Monday.

"No Chinese banks have yet reported exposure to debt from Dubai World, a flagship firm that last week said it was seeking to delay debt payments by six months. Some Chinese real estate and construction firms have limited exposure to projects in the emirate, state television reported this weekend.

"China's $2.27 trillion in foreign exchange reserves are mostly parked in U.S. treasuries, despite calls from some in China to invest the reserves in oil and other natural resources that the fast-growing Chinese economy will need in future.

"While the impact of the Dubai crisis on the global economy and on China was not known yet, it would last a while at the very least, Ji Xiaonan, who chairs the supervisory board for big state-owned companies under the State Council's state assets commission, told the Economic Information Daily.

""That could give China a buying opportunity to put some forex reserves into gold or oil reserves," Ji was quoted as saying by the paper, which is widely read by Chinese officials.

"Another paper, the China Youth Daily, quoted Ji as saying that a team of experts from Beijing and Shanghai had set up a task force last year to look at the issue of gold reserves.

""We suggested that China's gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years," the paper quoted him as saying."

Currently, China's gold reserve is 1,054 tons, making it the 6th largest gold reserve holder in the world just above Switzerland. The U.S. gold reserve, in comparison, is 8,133 tons, the world largest. The second largest gold reserve holder is Germany, with 3,408 tons.

"Defense Secretary Robert Gates had said the escalation would come quickly, despite caution that it was complicated to add so many troops to a war in a landlocked, virtually infrastructure free country on the other side of the globe. Still, most assumed it would be at least January when the troops started arriving.

Big Ben (Bernanke), aka the chairman of the besieged Federal Reserve, wrote an op-ed piece that appeared today in Washington Post. The arguments that he gives in support for his institution are the same old, tired ones he's already given elsewhere already. I'm wondering why he has bothered to write them up as an op-ed.

The danger that I see is this: He sounds rather anxious to keep his job and keep his institution intact, and he may intentionally let the next market crash happen sooner than later so that the Fed retains its credibility. ("See what happens when you try to mess with the Fed?") You can read it for yourself, by clicking on the link below:

Ben wants to design a system of financial oversight that will embody the lessons of the past two years. Past two years? Only two years, during which you insisted that there was no big problem in just about everything - from subprime to soundness of nation's banks to commercial real estate.

He believe the legislative proposals circulating in Congress are "out of step with the global consensus". What global consensus? Of the like-minded central banks and B.I.S., bank of central banks which is totally unaccountable to anyone?

He also believe that the Fed played a major role in arresting the crisis last year and that now it's time to preserve the Fed's ability. He just wants to keep all the goodies (policy tools) that he grabbed last year with the help of Hank Paulson, then Treasury Secretary. Kevin Warsh of the Fed board already said as much.

Whenever I hear that argument that the total meltdown was averted thanks to the Fed, it reminds me of some rogue firefighters setting fire intentionally so that they can "fight" it. The Federal Reserve withdrew liquidity from the market just when such liquidity was needed in September last year. (See this post by Karl Denninger of the Market Ticker from last year.) It was after the Lehman Brothers bankruptcy and huge withdrawal from money market funds, and after Ben and Hank went to Congressional leaders to demand $700 billion. It was right before the market started a spectacular crash. Yes, the Fed the hero.

Curiously, he seems to think the Fed's expertise conferred "stress tests" done in spring this year a great deal of credibility and clarity. I guess he didn't watch Saturday Night Live.

He makes statements without citing actual examples that justify such statements. He says that "Many studies have shown that countries whose central banks make monetary policy independently of such political influence have better economic performance, including lower inflation and interest rates." Ok, where? Can anyone name one country?

Also, this particular statement in the article, that "[the Fed's] supervision is also informed by the grass-roots perspective derived from the Fed's unique regional structure and our experience in supervising community banks", is highly dubious and misleading. Majority of the U.S. banks ARE NOT the Federal Reserve member banks. (See the chart on this wiki page.)

Again, why did he write a lame article like that? Why now?

Ben Bernanke seems to lack the tact and finesse of the bankers before the Glass-Owen act (that became the Federal Reserve Act) was enacted. Big bankers, who wanted the Federal Reserve, publicly spoke vehemently against the Glass-Owens act. The public perception was that if the greedy bankers opposed, it was because they would be hurt by it, so let's pass it. Total opposite was true, and we are where we are today, with the U.S. dollar's purchasing power having plummeted by more than 95%. If Bernanke wants to be the top dog in the new monstrous financial regulation organ, he should oppose it.

About my coverage of Japan Earthquake of March 11

I am Japanese, and I not only read Japanese news sources for information on earthquake and the Fukushima Nuke Plant but also watch press conferences via the Internet when I can and summarize my findings, adding my observations.

About This Site

Well, this was, until March 11, 2011. Now it is taken over by the events in Japan, first earthquake and tsunami but quickly by the nuke reactor accident. It continues to be a one-person (me) blog, and I haven't even managed to update the sidebars after 5 months... Thanks for coming, spread the word.------------------This is an aggregator site of blogs coming out of SKF (double-short financials ETF) message board at Yahoo.

Along with commentary on day's financial news, it also provides links to the sites with financial and economic news, market data, stock technical analysis, and other relevant information that could potentially affect the financial markets and beyond.

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